What is Circular Trading in Stock Market

May 6, 2012

Circular Trading, what does it mean by in stock market ? It is very important to know what exactly it is to avoid money loses in stock market specially for small traders.

Circular trading is basically trade done by a group of people among themselves to rig the share price.For e.g. A,B,C who are holding the same share “Stock A” can do a circular trading by A selling to B and B selling to C and C selling to A. By doing this they will be able to increase or decrease the share price since the trades are executed between themselves. This is normally done in IPO shares during listing to create the activity in the scrip and to distribute the stocks.

Day traders and small investors get caught in this vicious circular trading and lose their money. Avoid trading in IPO listing though it goes up 30% in a day, most of the IPO’s listed will come down after the initial frenzy is over. Another group of stocks which attracts circular traders are penny stocks where they will be able to rig the price constantly for couple of days and exit when the target is achieved. One way to identify this is use count of trades since most of the trades will be done in Bulk quantities.

For day/small traders it is very important to knew this type of concepts in stock market. Learn first and then trade, It is easy to make money in stock but same time it is very easy to lose if you don't know how stock market works.

We are lucky that this post is shared by one of the active trader in stock market who have 20 years of experience in stock trading and want to prevent some ignorant day traders from losing money.

Editor: Satish

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